Number of UK firms in financial distress shoots up by a third in past year

high street

The number of UK firms in financial distress has rocketed by a third from the same time last year, research out today has shown.

Figures in Begbies Traynor’s Red Flag Alert for the first quarter 2018 found that nearly half a million businesses were in ‘significant’ financial distress at the end of March 2018, up 33 per cent from 29 March last year when Article 50 was triggered.

However, Begbies Traynor did say that the increase was likely due to combination of Brexit uncertainty and a “range of unexpected headwinds.”

The sectors with the largest volumes of businesses in distress were Support Services, (115,249 companies, up 40 per cent year on year), construction (60,541, up 26 per cent), real estate and property (41,624, up 46 per cent) and telecommunications (32,538, up 47 per cent).

Professional services also saw large increases in companies in financial distress, as did financial services and automotive.

A total of 255,131 businesses in the UK ended the quarter with negative net worth, while 110,266 had a considerable increase in their working capital deficit.

Julie Palmer, Partner at Begbies Traynor, said: “While uncertainty around the outcome of the Brexit negotiations has undoubtedly had an impact on business confidence across the UK, the economy has also faced a wide range of unexpected headwinds which have dampened progress over the past year,” Julie Palmer, managing partner at Begbies Traynor said.

Currency fluctuations, rising interest rates, subdued consumer spending and a cooling property market are just some of the factors that have combined with growing political uncertainty to push nearly half a million UK businesses into financial distress over the past 12 months.

“Should these headwinds continue, they could impact the government’s bargaining power when it comes to negotiating new trade deals after the UK’s exit from the European Union, which would be a major concern.”

Ric Traynor, executive chairman of the company added: While the recent recovery in Sterling should put UK businesses who import raw materials into a stronger trading position, the biggest positive impact on business confidence is likely to come when we finally receive clarity over how our eventual exit from the EU will look.

In the short term however, the most pressing issue is whether or not the Bank of England decides to raise interest rates next month. If they do, it could push many struggling businesses, particularly those with high levels of debt, into formal insolvency.